When the Fed Buys a U

question 83

Multiple Choice

When the Fed buys a U.S. bond in the open market

• A) its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another.
• B) total reserves increase by the amount of the purchase but the money supply stays the same.
• C) its action expands total reserves and the money supply.
• D) its action contracts total reserves and the money supply.